When it comes to savings, I am a student of the Wealthy Barber, by David Chilton. Pay Yourself First! If the money is not available to you, then it cannot be spent on frivolous purchases. I, for one, am guilty of seeing something I like and then convincing myself that it is an absolute need vs. a want. I know that I am not the only one out there that does this. You know who you are!
The easiest solution is to set up an automatic savings/investment plan for a set amount that is comfortable for your monthly cash flow, but also enough to keep you on track with your long-term retirement plan.
So great, you’ve set up your automatic savings/investment plan to coincide on pay day. But that’s only the first step.
Year over year we see the costs of goods and services that we consume and use daily, increase. This is the result of inflation. As our living expenses increase, we adjust our spending to accommodate this. However, automatic savings/investment plans are often overlooked. Saving and investing for the future is just as important, if not more, than current expenses.
I suggest reviewing your ongoing savings plans and determine the last time you increased the amount. As a bare minimum, use a long-term inflation rate as your guide (i.e. 3%). For example, a $500/monthly investment plan should be increased to $600 after 5 years to keep up with inflation.
Treat savings like an expense and rest assured that your level of savings will keep up with inflation.
Carlo Cansino FMA, FCSI, CFP